embracing the market for the state’s sake the politics of...
TRANSCRIPT
Embracing the market for the State’s sake
The politics of Financialisation in post-Socialist Russia – the case of
Housing Finance
Mirjam Büdenbender
KU Leuven
4. EU Experts' Discussion | Belgrade | October 24 - 26 2014
Content.
1. Financialisation of ‘Periphery’?
2. Uneven & Combined
Development/Politicized Hybridity
3. Housing Finance in Russia
How to account for
Financialization of Periphery?
Literature
Review.
Indicators of financialisation? • Disintermediation
• financial innovation (or adoption of innovative products)
• Accumulation by companies and hh of financial relative to other assets
• Increasing acquisition of financial liabilities relative to the ability to pay and shifting of financial
assets away from deposits
How/to what end are financial products/practices adopted
in Post-Socialist Russia
• Politicizing ‘financialization’
• challenging the simply core-periphery binary (by shifting attention to agency of actors in
periphery)
Highlighting the qualitative nature of the process of
financialisation understood in terms:
Strategic use of financial practices and tools of both
public and private actors in line with profit motive and/or
power political considerations
In hybrid/uneven context of post-socialist political
economy and particularly in the realm of RE and Finance
Financialisation in post-socialist Russia: contribution
Aims &
Contributions
.
Accounting for Post-Socialism
Uneven & Combined Development (Trotsky 2008)
• Starting point: historical world of capitalism
• Dialectic of history
= difference a constitutive feature of global capitalism
Combination of disparate practices/ and their consequent alienation from their
ideological and institutional history (Golubchikov et al. 2013).
Legacy not as ‘past in present’ but rather generative to the capitalist
process itself
Hybridity new practices and meaning emerging out of the uneven
formation of perceived reality (Papastergiadis, 2005).
Framework.
Housing Finance - Russia
1) Core -> ‘Periphery’: Shock Therapy: Ideology of Homeownership, legal
framework for Mortgage Financing, Institutional Transplant AHML
Neoliberal/Washington consensus type of ideology and institutions were introduced to
Russia through the reform package of shock therapy. Case of housing finance &
securitization.
1) ‘Periphery’ -> Hybrid appropriation
Ideology& Institutions did not fit the legal-institutional legacy of the country, ‘Transplant
Failure’ (Zavisca 2012)
Combination of concentration of state power under Putin and global financial crisis, when
international capital dried up => the AHML/securitization based model was one channel
through which the state asserted its influence over the banking/financial sector:
strengthening of financial vertical.
Case Study.
Shock therapy – Transplanting a market
1992 USAID to implement the Housing Sector Reform Project (HSRP) funded by the US Freedom for Russian and
Emerging Eurasian Democracies and Open Markets (FREEDOM) Support Act. Three primary objectives:
1. to enable markets to allocate housing according to resources and preferences,
2. to reduce the state’s role in the housing sector and
3. to convince the public that housing markets are efficient and fair (USAID 1999).
Pursued through following programs:
• 1993 ‘Housing’ (Zhilishe): basis for legislative and normative documents promoting the formation of a market
system of long-term mortgage lending.
• 1997 Agency for Home Mortgage Lending (AHML, or Agenstvo po ipotechnomu zhilishchnomu kreditovaniyu,
AIZhK), a secondary mortgage facility, modeled on ‘Fannie Mae’.
• 1998 Federal Law on Mortgages signed by the president => two different types of secondary mortgage
instruments put in place: the mortgage agency (AHML) and mortgage securitization
• 2003 The Federal Law about Mortgage Backed Securities, provided for two types of ‘mortgage obligations’:
obligations issued by (i) a credit organization (covered bonds) or (ii) by a SPV (mortgage agent) (MBS)
• 2004 Housing Code =>reduced the commitment for public housing provision, subsidized mortgage provision
Case Study.
AHML – system of refinancing Case Study.
Case Study. Mortgage market only took off in mid-2000s in context of
unprecedented economic growth
But not due to AHML/securitization Case Study.
Mortgage loans refinanced by the Agency in
terms of number and amount
-All mortgages issued in Russia (thousand)
- Amount of mortgages refinanced by AHML
- Amount of mortgages issued by 5 biggest banks
State-led securitization - against all odds
Crisis & US model of housing finance as chance to strengthen ‘financial vertical’
MBS preferred over ‘European model’ of covered bonds & Bausparkassen: AHML & State banks now virtually
dominating the mortgage market
Political agenda against all odds:
Liquidity main problem: covered bonds more likely to alleviate this problem (Carbo ́-Valverde et. Al 2012)
Securitization in Russia highly problematic: big banks no need, small banks can’t afford; absence of interested
investors (Russian pension funds unclear legal situation)
Covered bonds & Bausparkassen do not fit comfortably with ‘financial vertical’ (Ericson 2009) =>
even though the American model of securitization-based mortgage failed economically in the Russian context, it
remains ‘core of Russian housing policy’ today ( Zavisca 2012, 51).
Case Study.
Thank you!
Thank you!
Case Study.
USSR – centralized housing policy
• ‘State property prevailed in construction, housing stock and the management of utility facilities;
• Housing construction was mostly planned and financed from a single center;
• State apartments were distributed free of charge among the people who were considered in need
of improving their living conditions (they were included in special waiting lists);
• It was not allowed to sell state housing but it was possible to exchange it (in most cases, with an
illegal additional payment);
• People were allowed to build their own private houses only in rural areas and in towns with a
population of less than 100.000;
• Cooperative housing construction was relatively well developed only in the largest cities, and
there was a dedicated waiting list for people who wanted to join cooperative housing construction,
as their living conditions did not exceed 5-7 sq. m per person;
• State banks seldom originated housing mortgages and only for cooperative and owner-built
housing, provided the private savings amounted to 40% (the interest rate was 2% for individual
construction under the credit facility, whereas it was 0.5% for housing construction cooperative
companies compared to 3% per annum for deposits at the banks)’. (Tumanov and Zhelezova
2013)
Case Study.
Affiliation: Institute for Urban Economics/Higher School of
Economics
Open-ended, semi-structured Interviews: 18 in Moscow, 4
in St. Petersburg
With: Consultants (6), Developer/Construction (5), Analysts
(3), Realtors (3), Journalist (1), Banking (2), Academics (2)
Attended:
4 Professional Conferences (commercial real estate,
residential RE financing, market analysis)
1 Academic Conference
1 Summer school
Field
Research.
Commercial Real Estate in Russia
Waves of Internationalisation.
Framework.
‘internally /externally driven market’ framework (Tasan-Kok 2003; 2007)
Avoid binary of internationalised/domestic market
Historical/historicising approach to transition
Embedding real estate trends in wider political
economy
Focus on actors and institutions
Russia has undergone four waves of RE (de)internationalisation, with
each wave in itself being highly complex and hybrid in nature
Internationalisation of Real Estate: Framework
Embracing the market for the state’s sake
State began to actively support mortgage market through:
1: Demand side: subsidized mortgage programs:
‘Return of the State: Creating Mortgage Markets’: 2006 national priority project ‘Affordable and
comfortable housing‘ (Dostupnoe i komfortnoe zhil’e – grazhdanam Rossii):
• Military mortgagae (voennaja ipoteka) 2004
• Maternity Capital(materinskij capital) 2007
• Young teachers (molodye etschitelja) 2011
• Young scholars (molodye utschenye) 2011
2) Supply side: Refinancing & Securitization)
Case Study.
Waves of Internationalisation. Why 4 ½ waves of Internationalisation?
‘Every five years something happens in Russia..’
‘One time every five years there is another crisis. Foreign
companies want to invest but then a crisis happens and
they postpone their plans for two, three years…then they
go again and then new crisis comes up’
‘If you look at Putin’s presidency there were some specific
objectives that seem to have been set for specific periods,
which almost always coincide with terms, a serious of
convictions concerning things he wanted to do…’
1991-1999 Real estate as object of primitive accumulation –
internally driven privatization, externally driven real estate
market
• Privatization
• Conversion of residential to commercial real estate/creation of
business districts
• The nature of the presence of international actors was
threefold: 1. Non-real estate foreign businesses, bought cheap residential flats
within the Moscow garden ring and converted them to preliminary
offices for their own use.
2. Few foreign real estate companies entered the Russian market –
meaning Moscow – with the aim of setting up a permanent
presence
3. Russian businesses that wanted to ‘unlock’ real estate for
themselves hired expats to provide their expertise.
Waves of Internationalisation.
‘no one knew how to build good malls and office centers, therefore foreign actors were
needed…’
1999-2004 Putin’s ascend – control and consumption,
hybrid of internal and external drivers
• Routinization of the economy (reform in political
system and of tax system)
• Emergence of strategic sector
• Windfall oil revenues:
- postpones investment in infrastructure (foreign
expertise)
- underpins consumption
• Office and Retail boom
- entrance of IKEA, Auchan, Metro
- foreign retailers become developers
- Russian businesses branch out become
developers and retailers
• Moscow/Moscow region: permissive urban policy &
trends of decentralization/diffusion
Waves of Internationalisation.
2004-08 Control and Consumption II: externally driven
market
• Division open vs. closed(strategic) sectors
-Ex. Yukos
• New division: 8 years budget surplus vs. growth
in private external debt
• Externally financed building boom and rise in real
estate prices
• Expansion into Russia’s regions
• Foreign developers dominate the market
• Share of foreign investors in commercial real
estate 62% (JLL 2014).
• Structural problems of the economy are
ignored/downplayed
Waves of Internationalisation.
Structure of retail space of hypermarkets on offer
by cities % (расчеты Д. Иванова)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2001 2002 2003 2004 2005 2006 2007 2008
Менее 250 тыс.
250-тысячники
500-тысячники
Миллионниики
Санкт-Петербург
Москва
Waves of Internationalisation.
• Crisis transmitted through: drop in export prices, decline in export
volumes, withdrawal of capital
• Switch: Domestic capital replaces external credit – (re)emergence of
state banks
• Switch: domestic developers replace foreign companies
• Switch: Share of Russian investors in commercial real estate 70%
2009-2013
• Flight to quality:
-professionalism of developers
-quality of construction
-Choice of projects (Foreign investors focus on class A offices and
shopping malls)
-urban planning/policy
• Differentiation in strategy between domestic and foreign developers
2008-2013 Crisis and ‘Recovery’ – Internally Driven market
‘In 2000-08 there was not necessarily an obstruction to foreign companies to come in, but they were not made felt
particularly welcome or supported. Now [after 2008] it is different. Now it is important that they come in not just for
money but also for expertise’
‘There is no real investment story for Russia. Investors hate Russia’
Post-Crimea:? Rise of geo-economic model?
• Expectation of return to pre-crisis scenario shattered
by Ukraine crisis
• Structural problems can no longer be ignored
• Ukraine – distraction of economic shortfalls?
Waves of Internationalisation.
‘Basically, big foreign money is tired of guessing what is going to happen next in terms of political
direction taken by Putin. And additionally there is the massive oil dependence of the country. So
even if an investor makes the right bet politically, who knows what will happen when oil prices
decline?’
Concluding
Thoughts.
This paper has shown that
• Real Estate internationalisation in Russia is
an uneven process, which reflects wider
politico-economic trends
• Russia has undergone several phases of
(de)internationalisation in line with specific
domestic and international events and
developments
It remains to be investigated by future studies
• to which degree Russian capital and actors
are themselves becoming agents in the
process of internationalisation
• The geopolitical implications of such
processes (e.g. Russian capital flowing into
London real estate)
Concluding Thoughts
Notes from the field
Commercial Real Estate in Russia – Waves of Internationalisation
Mirjam Büdenbender
KU Leuven
Prepared for: The Real Estate/Financial Complex/
August 20-22, 2014 / Leuven, Belgium
Russian law unattractive/continuously changing offshore
first introduced by foreign actors in 2000s later adopted by
Russian businesses for:
• Laundering round-tripping (RE):
• Institutional arbitrage round-tripping (RE)
• Capital flight investment (RE NYLON)
Allows to:
= evade ‘grabbing hand’ state,
= at the same time allows this state to continue (resist
sanctions)
= ‘feed’ mature capitalist markets
Недвижимость/оффшорный комплекс Case
Study
You can rely on our legal system!
Case
Study I Real Estate/Offshore Complex
• State/public actors: hybrid of soviet hierarchy
and participatory approach
• Private developer: Offshore company
(Cyprus)
• Conditions of urban life, no social utility,
against health and safety regulations
• Civil society response
Politburo 2.0 and financial innovation- Новокосино Case
Study II
Financialisation and post-socialism –
the ‘Real Estate/Financial Complex’ in
Russia
Mirjam Büdenbender
KU Leuven
Proposition I: Real estate is a key dimension mediating
relations and power struggles in the contemporary
finacialised global political economy
Proposition II: Post-socialism describes uneven, hybrid social
realties, which reveal the transformative capacity of capitalism
(rather than a distortion of capitalism).
Proposition III: It is useful to think of REFCOM in its diverse
expressions as qualitative, socially negotiated process, which
affects/mediates power relations (rather than a formalistically
defined condition)
Towards a political economy of the Real Estate/Financial Complex in
Post-Socialist Russia.
Propositions.